What eBay Could Learn From Craigslist

THESE days, triple-digit annual growth rates are rare among major Web sites. Meet that rarity: Craigslist.

Exceptional, too, is the ability to draw 10 million unique visitors each month without ever relying on venture capital and equity markets. Or the ability to attain fourth place among general-interest portals without ever spending a penny on marketing.

Signal accomplishments, to be sure, fit for boasting in an annual report. But Craigslist is a privately held company that has no such reports, and no burning interest in the competitive fray. It does far more shrugging than boasting. Its management regards profits, which it has earned consistently since 1999, as merely the means to remain in control of its own destiny. Free of debt, it can do as it wishes to maximize what it calls its service mission without having to maximize profits. This is good news for its customers -- that is, community members -- and bad news for competitors whose shareholders are unlikely to regard community service as their own companies' raison d'être.

Until recently, Craigslist was the overlooked underachiever from that fertile class of 1995 start-ups. Like eBay, it began as a free community service that year, a little experiment in applying technology to community-building, not profit-seeking. Craigslist initially provided online listings of local events in the San Francisco Bay Area, the kind that could be found in an alternative newspaper. Visitors were encouraged to contribute, and they added the online equivalent of the mainstream newspaper's classified section. Software handled e-mail forwarding.

Unlike eBay, which is dedicated to removing geographic obstacles to trading and defines "community" along national boundaries, Craigslist thinks and acts locally, organizing listings city by city for merchandise, jobs, real estate, personals, events, volunteer opportunities and discussion forums. It has moved at its own idiosyncratic pace, waiting five years after its start to add a second city, Boston. Today, it has sites for 120 cities in 25 countries and serves up 2.4 billion pages a month.

Craig Newmark, its founder, was, and remains, protective of the noncommercial character of the site. In the early years, he ran it in his spare time with the help of other volunteers. Eventually, the traffic overwhelmed them; he quit his day job and imposed fees to pay for full-time stewardship. But he minimized the impact on the community by restricting the new charges to employers in San Francisco who placed job ads. Modest fees for employers in two other cities were added only last year, and only after Mr. Newmark invited Craigslist visitors to comment on the wisdom of the change; there were 3,000 remarks, all posted publicly. Today, 99.2 percent of Craigslist advertisements remain free.

If you're the publisher of a local newspaper, you're spending a lot of time thinking about Craigslist. Traditionally, local newspapers have derived 30 to 50 percent of their advertising revenue from the classifieds.

Surprisingly, the momentum of this online alternative with virtually free offerings had not drawn much attention as recently as last fall, when Creative Intelligence, a consulting firm based in Altamonte Springs, Fla., surveyed the newspaper industry. It discovered that many executives were unaware of the arrival of Craigslist in their own cities. Nor were all aware that aside from a sliver, ads on Craigslist were available free.

Late last month, Knight Ridder Digital announced its plan to finesse the challenge of free classifieds: it dropped fees for ads for merchandise posted on the Web sites of 22 of its newspapers. When you visit one of these sites and prepare to submit an ad, however, you must navigate past pitches for various fee-based upgrades. The basic ad is free, but after 500 characters, you pay $1.99. Bold face, another $1.99. A photo package, $3.99. And so on. À la carte charges are the way business is done on eBay, but not on the commons of Craigslist. What part of "free" is difficult to understand?

Executives at eBay have their own reasons to lie awake thinking about Craigslist. EBay, the child prodigy that went the corporate route and became a publicly traded company at the age of 3, now faces sharply declining growth and that awful fate no prodigy is ever prepared for: middle age.

Data collected by Nielsen/NetRatings show that eBay's page views in April 2005 grew by less than half a percentage point, compared with the previous April. At Craigslist, page views grew 130 percent in the same period. According to the company's data, its traffic is now about a fifth of eBay's. And the operational efficiencies are astounding: Craigslist has 18 employees; eBay has 8,800.

Even though eBay's pockets are flush and it can afford to pay retail prices for acquisitions, like $620 million in cash for Shopping.com, announced last week, it must look ever further afield for growth.

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One way is to use its technology infrastructure to improve classified advertising. Hani Durzy, a spokesman for eBay, says its core business is a "transaction marketplace," in which the sale is completed online with a binding contract.

In contrast to the "transaction marketplace," classifieds merely enable private parties to get in touch. Viewed in terms of technology and legalities, Craigslist provides nothing more than the newspaper classifieds. To consummate a deal, you're on your own.

But that seems to be all that its large and ever-growing base of fans desires. The offerings of Craigslist have never been more appealing, even though -- or maybe because -- it is retro in look and retro in its online technology. EBay uses an elaborate feedback apparatus to allow strangers who will never meet in person to feel safe doing business with one another. Craigslist does not need that apparatus. It is for locals only, and it is the one place that can fix you up with an entire life -- job, shelter, furnishings, lover -- at one stop, with minimal intermediation.

In August, eBay bought a 25 percent stake in Craigslist from a former Craigslist employee. Mr. Durzy said at the time that eBay was "interested in finding out how classified-style trading works."

THAT turned out to be an understatement. In February, eBay started Kijiji, a set of more than 50 international sites providing free classifieds, similar to Craigslist, in cities in Canada, China, France, Germany, Italy and Japan. By last month, the number had grown to 90, and eBay announced two related acquisitions that expanded the network. It is too soon to know how far eBay may go in copying the nonjudgmental approach of Craigslist's community discussions and sexually explicit personal ads.

In some cities, Kijiji and Craigslist co-exist, with Kijiji offering the local language and Craigslist offering English-only listings. Both companies maintain an official stance of being unconcerned about the likelihood of mutual competition ahead.

Were eBay interested, it could learn something else from Craigslist about doing business: how to reach decisions while consulting with its community, eliminating surprises and ill-considered choices. Mr. Newmark, who works full time performing customer-service chores, remains certifiably 100 percent hubris-free.

"Folks, we're considering charging apartment brokers for apartment listings in N.Y.C.," Mr. Newmark told the community earlier this year, explaining in great detail the pros and cons. He added that he would "need your help figuring out what I've missed."

Five years after the technology bubble burst, the success of Craigslist shows an enduring public appetite for online offerings that closely complement life lived off line. Being 99.2 percent free doesn't hurt either.

DIGITAL DOMAIN Randall Stross is a historian and author based in Silicon Valley. E-mail:ddomain@nytimes.com.

Correction: June 12, 2005, Sunday The Digital Domain column last Sunday, about Craigslist, the online bulletin board, misstated the name of a consulting firm that found in a survey last fall that many newspaper industry executives were unaware of the site's arrival in their cities. The firm is Classified Intelligence, not Creative Intelligence.